Budget hawks in Congress talk a great deal about health care waste. Where does it come from?

Shuttershock

Health care
in the United States is distinguished from the rest of the world by its very high costs, which are caused in large part by exceptional levels of waste and inefficiency in our
health care system. Many credible estimates put this level of waste at an
astonishing 30 percent or more. With health care costs driving federal deficit
projections, as well as higher costs for families and businesses,
it's past time that we took a hard look at this waste and take steps to address
it in a serious way. We can no longer afford the status quo, nor can we afford
misguided efforts to cut costs in one part of the system by simply shifting
them elsewhere.

There is no magic bullet that will stabilize health care costs as a percent of the
economy. Instead, we must pursue a multi-pronged approach designed to affect those cost drivers that are within our power to change. If we are to succeed,
every major stakeholder group -- providers, consumers, and employers alike -- has a
key role to play. But before describing what must be done, we need to first
understand a few crucial facts about our health care system.

First, much of the trend driving spending today is the result of an epidemic in
chronic conditions, including heart disease, hypertension, and diabetes, which
has origins in changing patterns of diet and physical inactivity. This is a
worldwide phenomenon. Medical science cannot reverse it -- only changes in food
supply and lifestyle can. We have a health emergency all around us, and our
response to date has been far too tepid to have an impact.

There is no magic bullet that will stabilize health care costs as a percent of the economy.

The second reality behind health care costs is that they are often concentrated on
a small number of very ill persons. Five percent of patients in any given year
account for roughly half of all health care spending. These patients, afflicted with
multiple chronic conditions, are the same patients who often receive
uncoordinated and ineffective care from multiple specialists, hospitals, and
emergency rooms. This lack of coordination hurts patients with the
greatest health needs and robs the system of needed resources.

A third reality is that health care costs are not the same in every part of the
country. There are major variations in both the price and volume of care that doesn't seem to be related to positive health outcomes or quality, even within the
same state or region. In fact, more care and more expensive care turn out not
to be better care in many cases. This
variation is partly a function of a lack of transparency in health care
spending -- too often we don't know what is being done and by whom, at what price,
and with what results.

If we are to face up to these realities, changing how providers deliver care and
how they are compensated will be vital. The incentives inherent in today's fee-for-service
reimbursement system reward volume, not value. Fee-for-service incentivizes
distinctly quantifiable medical procedures rather than the more amorphous counseling
and follow up consultations, which cannot be billed under the current system but are often the key to improving patient health. It gets in the way of the
"team care" approach -- where doctors, nurses, and other health professionals work
together -- that is proving most effective at producing the best outcomes for
patients in practice demonstrations nationwide.

There are many proposals to move us away from a purely fee-for-service reimbursement
system, but they all share a common theme -- tying payment to value. Value is
understood to be mostly about achieving optimum patient outcomes, but it also
takes into account the relative cost of certain procedures versus alternatives.

Alternatives to fee-for-service reimbursement are in development. Hospitals are purchasing
the practices of specialists and moving them to a salaried reimbursement system,
albeit with incentives built in to advantage the specialists. Medicare and
other insurers are going ahead with "pay for performance" reimbursement
initiatives that modify physician fees based on measures of quality and
resource use. Likewise, there are now successful experiments in "bundled"
payments that set a price for all services related to an entire course of care,
such as treating a broken leg.

If we are to enlist America's
health care providers in taming health-care costs, we must do more than develop
alternatives to fee-for-service. We must implement them on a broad scale. The
first step will be replacing fee-for-service payment in public programs like
Medicare and ensuring that the value-based approaches we pursue are
well-aligned with similar initiatives by private payers. Private insurers and
employers are also innovating, but they often lack sufficient market power to
be effective on their own

Patients
and consumers, as well, will prove crucial to restraining costs and increasing value.
The concept of "value-based benefit design" is a conscious effort by insurers
and employers to steer patients to high-value prevention and screening services,
and away from other procedures that may have a low chance of success. Patients would
also benefit from the growing availability of comparative cost and quality data
collected on individual practitioners and hospitals. The basic information
systems necessary to track costs and outcomes, however, are not yet available
to consumers.

The
recently announced "Choosing Wisely" campaign encourages patients to talk with
their doctors about several widely over-used tests and procedures that have been
shown to have little value. It's an important first step in engaging patients
more fully in their care.

Finally,
patients could lower system costs simply by taking their medications as
prescribed. Today, more than 20 percent of first-time prescriptions are never
filled, and 50 percent that are prescribed for chronic conditions are not renewed
after six months. Non-adhering behavior drives up system costs due to
unnecessary emergency room visits and preventable medical complications.
Health care providers obviously have a role to play here as well, deploying
low-cost follow-up care to ensure that patients don't relapse in to sickness
later.

Small
steps can make a big difference. Healthier school lunches and community
physical activity programs can establish better eating and exercise patterns
for the whole family.

Employers
are another indispensable part of addressing waste in our health care system. As
roughly 160 million Americans are insured through employer-provided plans, employer
leadership will be crucial to successfully implementing the provider- and
patient-focused reforms I have described. They also have a unique and special
role to play in addressing the epidemic of chronic disease. Many employers have
started to offer wellness programs and coaching designed to change behavior by those
most at risk. Smoking cessation is one of the most cost-effective programs for
reducing employer health care spending, along with support for those who have
abused alcohol and drugs.

Getting
serious about waste in health care is an effort everyone can do something
about.

About the Author

John Rother is President and CEO of the National Coalition on Health Care. Prior to joining the Coalition in 2011, Mr. Rother served as the longtime Executive Vice President for Policy, Strategy, and International Affairs at AARP.

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